US: Employment Situation


Fri Nov 03 07:30:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
Nonfarm Payrolls - M/M change 325,000 200,000 to 371,000 261,000 -33,000 18,000
Unemployment Rate - Level 4.2% 4.2% to 4.4% 4.1% 4.2%
Private Payrolls - M/M change 320,000 260,000 to 368,000 252,000 -40,000 15,000
Manufacturing Payrolls - M/M change 19,000 10,000 to 34,000 24,000 -1,000 6,000
Participation Rate - level 63.0% 63.0% to 63.1% 62.7% 63.1%
Average Hourly Earnings - M/M change 0.2% 0.0% to 0.5% 0.0% 0.5%
Average Hourly Earnings - Y/Y change 2.7% 2.6% to 3.1% 2.4% 2.9% 2.8%
Av Workweek - All Employees 34.4hrs 34.4hrs to 34.5hrs 34.4hrs 34.4hrs

Highlights
Wage inflation backed off but payroll growth bounced higher and the unemployment rate shrunk some more in what points to further tightening for the labor market. Nonfarm payrolls rose 261,000 in October which is lower than the expected rebound but is offset by 90,000 in upward revisions to the two prior months. The unemployment rate edged 1 tenth lower to a new 17-year low at 4.1 percent.

After spiking 0.5 percent in both July and September, average hourly earnings came in unchanged in October with the year-on-year rate falling back sharply to a very moderate 2.4 percent. Whether wages can stay moderate given the strong demand for labor is the puzzle of this report.

Hurricane effects are likely the cause of the monthly gyrations in this report and are most evident at restaurants where payrolls jumped 89,000 after plunging 98,000 in September. Manufacturing payrolls are a big plus in the report, up 24,000, with construction also positive at 11,000. Professional business services underscore the demand for labor, rising 50,000 with the temporary help component up a very sizable 18,000.

The average workweek for all private-sector employees was unchanged at 34.4 hours but manufacturing hours and manufacturing overtime both show gains which point to a long overdue rebound for the manufacturing component of the industrial production report.

The pool of available workers shrunk sharply in the month, down 724,000 to 11.705 million which underscores the tight conditions. How long can employers dip into the pool without having to raise wages is the central question right now for policy makers. And the sharp dip in the labor participation rate, down 4 tenths to a much lower than expected 62.7 percent, suggests that discouraged workers, despite the high demand, may be drying up as a source of additional labor. Today's report should confirm expectations for a rate hike at the December FOMC.

Market Consensus Before Announcement
Hurricane effects pulled nonfarm payrolls down 33,000 in September and a bounce-back gain of 325,000 is expected for October. The consensus range, however, is very wide, between 200,000 and 371,000. September's unemployment rate fell to a 16-year low of 4.2 percent and is expected to hold there in October. No less dramatic was a sharp jump for average hourly earnings where September's 0.5 percent surge is expected to slow to 0.2 percent for a 2.7 percent yearly rate vs 2.9 percent in September. Other calls are for a 320,000 rise in private payrolls, a 19,000 gain for manufacturing payrolls, and no change for the workweek at 34.4 hours.

Definition
The employment situation is a set of labor market indicators based on two separate surveys in this one report. The unemployment rate equals the number of unemployed persons divided by the total number of persons in the labor force, which comes from a survey of 60,000 households (this is called the household survey). Workers are only counted once, no matter how many jobs they have, or whether they are only working part-time. In order to be counted as unemployed, one must be actively looking for work. Other commonly known figures from the Household Survey include the labor supply and discouraged workers.

The Establishment Survey-a survey of over 557,000 worksites- provides additional indicators. Nonfarm payroll employment is the most popular and well-known indicator from this survey. Business establishments in the nonfarm sector report the number of workers currently on their payrolls. Double counting occurs when individuals hold more than one job. Workers on strike during the relevant week are not included in the figures.

Due to sizeable swings in payroll employment during 2010 for hiring and then layoffs of temporary workers for the decentennial Census, analysts started giving essentially equal attention to private nonfarm payrolls as to overall payrolls. This added focus continued even after temporary Census worker issues were no longer a problem as the long-duration recession caused state & local governments to cut their workforce even as the private sector began to rehire during recovery.

The average workweek is a leading indicator of employment. Businesses tend to adjust total hours worked by increasing or decreasing the workweek before hiring someone new or laying someone off. These figures come from the Establishment Survey.

Average hourly earnings are monthly payroll figures reported before deductions for taxes, social insurance and fringe benefits. They include pay for overtime, holidays, vacation and sick leave. These figures come from the Establishment Survey.





Description
If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions can be dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of opponents of easy monetary policy. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.


Importance
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month. Additionally, the Fed has made 6.5 percent unemployment a threshold for considering changes in policy - both for quantitative easing and the fed funds rate. And the Fed has emphasized that it is overall labor market conditions that matter - not just a specific number.

Interpretation
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.

Nonfarm payroll employment indicates the current level of economic activity. Increases in nonfarm payrolls translate into earnings that workers will spend on goods and services in the economy. The greater the increase in employment, the faster is the total economic growth. When the economy is in the mature phase of an expansion, rapid increases in employment cause fears of inflationary pressures if rapid demand for goods and services cannot be met by current production.

When the average workweek trends up, it supports production gains in the current period and portends additional employment increases. When the average workweek is in a declining mode, it probably is signaling a potential slowdown in employment growth-or even outright declines in employment in case of recession.

Gains in average hourly earnings represent wage pressures. It is worth noting that these figures aren't adjusted for overtime pay or shifts in the composition of the workforce, which affects wages on its own. Market participants believe that a rising trend in hourly earnings will lead to higher inflation. But if increased wages are matched by productivity gains, producers likely will not increase product prices with wages because their unit labor costs are stable.